The Forgotten Math: Pre-WWII New Deal Saw Biggest Drop In Unemployment Rate in History

On Christmas Eve, I appeared on Fox News to discuss the upcoming economic recovery package, only to be told that FDR's New Deal "prolonged the Great Depression" (you can watch the clip here). This is the latest consevative talking point - one specifically aimed at stopping President Obama and the new Congress from passing a New Deal-sized package of public spending.

And so after appearing on Fox, I decided to devote my first newspaper column in the New Year to looking into whether conservatives have any shred of evidence to support their claim that the New Deal prolonged the Great Depression. And what do you know, they don't...at all. In fact, as government data shows, the pre-WWII New Deal era from 1933-1940 - even including the much-hyped recession of 1937-38 - saw the single biggest drop in the unemployment rate in American history (skip down to see the graphs and data that conservatives want us to forget).

In my column, I cite data about this, noting that the economy grew at stellar rates and that unemployment dropped. I also concede that the New Deal wasn't perfect. But the basic macroeconomic data about jobs and growth - the data points we use to judge every presidential economic agenda - confirms this positive record.

Since my column came out, I've received an overflow of angry email from conservatives citing Amity Shlaes since-discredited book The Forgotten Man as "proof" that the New Deal prolonged the Great Depression. But note - the operative phrase is "since-discredited." As University of California historian Eric Rauchway has noted, Shlaes both wholly omits some relevant data and deviously manipulates other numbers:

Shlaes makes a different argument about numbers, because she uses different numbers. She starts each chapter with a rat-a-tat of just-the-facts, but instead of GDP, which represents the overall economy, she quotes the Dow Jones Industrial Average, which represents the maybe 10 percent of Americans who owned stock...Let's look at a figure Shlaes gives twice in her book and again in her Wall Street Journal editorial: She has unemployment at 20 percent in the 1937-38 recession. That's appalling--almost as bad as 23 percent in 1932. Based on such a statistic, you could think the New Deal wasn't alleviating the Great Depression. But that number hides something: A third of the people Shlaes counts as unemployed had a job that the New Deal gave them through its relief programs.

By this measure, government jobs don't count as jobs, and therefore their estimates of unemployment are far higher. To understand how manipulative this is, imagine the howls of protest conservatives would be airing if, in criticizing George W. Bush, Democrats took today's unemployment data and then inflated it by counting the millions of people who work for federal, state and local governments as unemployed.

Shlaes is backed up by other conservatives, who are slightly more honest than her in acknowledging unemployment may have decreased during the New Deal. But these right-wingers then inevitably claim that unemployment only decreased a little bit in the New Deal, and only significantly dropped when World War II and the subsequent defense buildup started.

So to end this historical revisionism once and for all - to compare apples to apples, rather than apples to conservatives' fuzzy math - let's go to the great equalizer, the Census Data, and specifically Census document HS-29 (available in PDF or Excel formats). Quoting directly from Census data, here are the unemployment rates and total number of official unemployed at the beginning and end of the presidential terms since the Great Depression:

ROOSEVELT PRE-WWII NEW DEAL 1932 Unemployment Rate: 23.6% (12.8 million total unemployed) 1940 Unemployment Rate: 14.6% (8.1 million total unemployed) Unemployment Rate Change: -9.0 Total unemployment percentage change: -36.7%

ROOSEVELT WWII
1941 Unemployment Rate: 9.9% (5.5 million total unemployed)
1944 Unemployment Rate: 1.2% (670,000 total unemployed)
Unemployment Rate Change: -8.7
Total unemployment percentage change: -87.9%

TRUMAN
1945 Unemployment Rate: 1.9% (1.0 million total unemployed)
1952 Unemployment Rate: 3.0% (1.8 million total unemployed)
Unemployment Rate Change: +1.1
Total unemployment percentage change: +81.0%

EISENHOWER
1953 Unemployment Rate: 2.9% (1.8 million total unemployed)
1960 Unemployment Rate: 5.5% (3.8 million total unemployed)
Unemployment Rate Change: +2.6%
Total unemployment percentage change: +110.03%

KENNEDY
1961 Unemployment Rate: 6.7% (4.7 million total unemployed)
1963 Unemployment Rate: 5.7% (4.0 million total unemployed)
Unemployment Rate Change: -1.0%
Total unemployment percentage change: -13.6%

JOHNSON
1964 Unemployment Rate: 5.2% (3.7 million total unemployed)
1968 Unemployment Rate: 3.6% (2.8 million total unemployed)
Unemployment Rate Change: -1.6%
Total unemployment percentage change: -25.6%

NIXON
1969 Unemployment Rate: 3.5% (2.8 million total unemployed)
1974 Unemployment Rate: 5.6% (5.1 million total unemployed)
Unemployment Rate Change: +2.1%
Total unemployment percentage change: +82.0%

FORD
1975 Unemployment Rate: 8.5% (7.9 million total unemployed)
1976 Unemployment Rate: 7.7% (7.4 million total unemployed)
Unemployment Rate Change: -0.8%
Total unemployment percentage change: -6.6%

CARTER
1977 Unemployment Rate: 7.1% (6.9 million total unemployed)
1980 Unemployment Rate: 7.1% (7.6 million total unemployed)
Unemployment Rate Change: 0.0
Total unemployment percentage change: +9.24%

REAGAN
1981 Unemployment Rate: 7.6% (8.2 million total unemployed)
1988 Unemployment Rate: 5.5% (6.7 million total unemployed)
Unemployment Rate Change: -2.1%
Total unemployment percentage change: -19.0%

BUSH I
1989 Unemployment Rate: 5.3% (6.5 million total unemployed)
1992 Unemployment Rate: 7.5% (9.6 million total unemployed)
Unemployment Rate Change: +2.2
Total unemployment percentage change: +47.2%

CLINTON
1993 Unemployment Rate: 6.9% (8.9 million total unemployed)
2000 Unemployment Rate: 4.0% (5.6 million total unemployed)
Unemployment Rate Change -2.9
Total unemployment percentage change: -36.3%

As you can see, in terms of the unemployment rate - that is, the percentage of the total workforce not working - the pre-WWII New Deal era saw the single largest drop in American history. Yes, I'll say that again for conservatives, just to make sure they get it: The PRE-WWII New Deal era from 1933-1940 - not the WWII era - saw the largest drop in the unemployment rate in American history. And by the way, that even includes the recession of 1937-1938. You can see it right here in graphical format:

Now, it is certainly true that the percentage drop of total unemployed was bigger in WWII than it was in the pre-WWII New Deal era. But as the data show, even by that metric, the pre-WWII New Deal era saw the second largest percentage drop in total unemployed in the 20th century, going from 12.8 million unemployed in Roosevelt's first year in office to 8.1 million unemployed at the end of his second term in 1940. That's a 36.7 percent drop - larger than the Clinton era (36.3%) and, yes conservatives, larger than the Reagan era (a mere 19%). At the absolute minimum, that would suggests the New Deal was a positive - not negative - economic force (and empirically more positive than, say, Reagan's free-market agenda). Again, here it is in graphical format:

These are the hard and fast numbers conservatives would like us all to forget with their claim that history proves massive spending packages like the New Deal will supposedly harm our economy. Indeed, as the numbers show, we'll be very fortunate if Congress and President Obama delivers as robust an agenda as the New Deal delivered kind of job success that Roosevelt delivered in the pre-WWII New Deal era.

Comments

[DallasMike]

Thats nice and all but please name 2 Gov't programs that acualy work?

[splinky]

Only two? Okay:

Your local fire department.

The military.

Both socialized. Both effective. And both capable of employing people.

[ouroborous]

Well put.

We gotta stomp out this meme that "government programs never work."

[mjc]

While not having the facts and figures that you certainly have, conservatives and many Republicans always take the position that involving the government in economic crises in this country is not effective. Comes from some dumb statement made long ago by one of the GOP presidents that the business of America is business. They believe that capitalism OBVIOUSLY won over socialism and communism and any other economic ideology, EVEN when the Depression seemed to throw those arguments back in their faces. The present Republicans have very little ideology to go with since George Bush's presidency has been an obvious failure, even to them, so they cook up that argument that FDR really didn't help getting the Depression under control. I had nine uncles and even some aunts then who, not having a lot of money or ANY money in the market, not living high on the hog either, managed to work in factories. Many were bustling toward the end of the 1930s because of increase in cars and because we were supplying some heavy duty goods to Europeans. It wasn't a far cry to having full production by the time the war came.

[RightWingMarine]

Since the govt can only spend a dollar by first taking a dollar away from someone else (unless Santa Claus is making deposits I don't know about) having the govt create jobs can only come at the expense of private sector jobs. Businesses that would have gotten off the ground or expanded had their money seized so they govt could waste it on one boondoggle or another.

[RoloTomassi]

Ah, a perfect example of Rightwing economic nonsense; no wonder you folks embrace a system that is purely faith-base­d--apparen­tly logic doesn't enter into it.

Leave economic pronouncements to folks who at least understand the basic concepts; it's clear that your understanding is thin to non-existent.

And don't ask me to prove anything about this to you; it's not my job to provide you with the most rudimentary principles of economics.

[RightWingMarine]

yeah make claims but don't offer any reasoning behind your claims. At least my claim follows a logical sequence. The govt has no money of its own so this money has to be taken from someone. That someone no longer has that money so they can no longer spend it. Since they can no longer spend it they can no longer create employment. Thus a private sector job is lost at the expense of creating a govt job.

Perhaps instead of proclaiming yourself king of Economics you should read Basic Economics by Thomas Sowell. It will really help you out.

[Skepticat]

I'm curious why someone who believes that governments take jobs from the private sector would work for the government and become a marine. Were there no private mercenary jobs available in Soldier of Fortune?
And all that neat - and expensive - equipment used by the armed forces, didn't the government pay the private sector (probably too much) to make and supply the stuff. If you think about it - good thing they did - the civilian market for harrier jump jets - and other nifty stuff is so limited. Think of all those private sector jobs and companies that depend on government contracts supported by taxes that right wingers don't want to pay.

[Sundialsvc4]

My initial reaction to these numbers, David, is that you are somewhat comparing apples to oranges. Here's why...

In Roosevelt's day, there was a dearth of infrastructure in a lot of places. Take, for instance, the Tennessee Valley region, which did not have electrification, nor good farming practices, nor navigable waterways, nor even particularly good roadways. All of these were constructed by the (New Deal) TVA, who maintains them to this day. Once this infrastructure existed, it promoted and sustains the present status-quo.

This process of building is, I believe, what makes FDR's performance on your graphs to be somewhat of an "outlier," that is to say, an exceptional case that cannot be compared at-par with the other figures... all of which reflect an environment in which "the New Deal now exists," and illustrate the financial consequences of the fact that "it exists." When New Deal was being implemented, per contra, it was by-definition being built "when it did NOT exist."

Federal spending comes at a price... of debt. Therefore, I do not believe it should be included in the GDP. When I make something and sell it to you, I create money. When the government taxes, or "borrows from itself," and spends something, "money appears" but debt (or unspoken inflation) does too.

[randyjet]

You forget that the TVA does NOT give away the power for free do they? That goes into government coffers as well. The government creates things all the time for use. So to say that it only consumes is a lie.

[LITNUP]

1937 saw a worse unemployment and economic slide AFTER FDR New Deal than the 1929 crash

[Doofus]

As is all too often the case, then, the answer is quite simple.

We need to immediately hire a whole bunch of people & put
them to work. Something tells me the best way to do this, in
the short term, competition-wise, is 'sneaker manufacturing'.

We have the people! Let's put them to work. Much like the
Space Race of decades past, let us endeavor to put a
running shoe (or two, or four!) on every un-shod foot
on the planet! If possible, we should be very sneaky
about this. Sneak up on the competition, if we can.
Make a pile of shoes that reaches to the moon!
Oh, yeah, and then *sell* them.

When some folks see problems, look for opportunities!

[mamacita]

Just a question....Are these unemployment figures based on the same set of statistics? I've heard that the way unemployment is determined has been changed over the years. For example, I've heard that if we had the same standards for recording unemployment from, say, pre-Reagan years, our unemployment rate today would be in the double digits.

I'm not arguing the point of the article, I was just thinking that this would skew the numbers to illustrate your point even more.

[druky]

hey wicknerd, very nicely put and right on the mark.

[pjburke]

David: Great work, as usual... and this member of "the choir" is heartened that you're still there slugging away and gettin' 'er done.

But conservatives don't "do" facts... not their thing.

[Peter007]

David is arguing political issues and not economic issues. In the political world, unemployment rates and recessions count for political points. In economic terms, they are relative.
A president that is in office during a recession is as much to blame for the poor economy as a president that is in office during a hurricane is to blame for a hurricane.. Thats politics.
Economics is part social science, part financial science. It's possible to have 100% employment.
I believe North Korea has no unemployment. Thats not the only goal of an economic policy.
The two conflicting ideas in the world today regarding economic policies are free markets vs. central control and planning. One acknowledges the benefits of a free people to chose their destiny, the other relies on a police power to dictate peoples choices. The central planning governments, ( China and Russia) have moved to a free market system after trying a central planning type system. The results speak for themselves.

[wicknerd]

Peter007, I agree with your argument that unemployment should not be the only consideration in determining the health of the economy. But your claim that "central planning" as a general concept is akin to Communism is flawed. Likewise, to suggest that the U.S. is a "free market" is also mistaken.

The U.S. government already polices much of the country's economy. The SEC monitors trading, the Commerce Department sets industrial standards and issues patents/trademarks, the Department of Labor set wage, hour, and occupational safety standards, the EPA sets industrial environmental regulation, the Federal Reserve manages the money supply and the discount/federal funds rate, and the Treasury Department collects corporate and income taxes, not to mention social security, unemployment benefits, and tariffs/subsidies for international trade. The list could go on and on. Although our economy is significantly freer than that of North Korea, it is by no means completely free.

The debate is not whether or not our system should be FREE or CENTRALLY PLANNED, but rather what compromise of the two ideas we should create. Many of the new agencies that FDR established during the New Deal have helped to promote steady and stable economic growth, which partly explains why the current recession will not turn into the Great Depression, when a large percentage of the population was standing in bread lines all day. Neither economic anarchy nor economic despotism is the answer. Somewhere in the shades of gray lies the solution we are looking for.

[sunny123]

David, as ussual, you have your facts and figures in order. Unfortunately, the conservatives are not going to listen as usual. We will have to keep working with Obama to make sure the don't undo all the good him plans will do. I don't see them as ever being for "we the people." Only folks they care for are themselves and other rich elites.

The Denver paper is a great place to start, but you need to be on Washington Post and New York Times. Denver is a nowhere kind of place where Gov. Ritter can send an academic to the senate and expect things to get done.

I appreciate your keeping us informed and look forward to continuing to hear from you. Keep up the good work.

[ReasonIsMyReligion]

Also, note the marginal tax rate for the top brackets back then.

I promise you'll be stunned:
http://www.truthandpolitics.org/top-rates.php

Tax the rich. It's patriotic.

[doodlefarbe]

"Tax the rich. It's patriotic."


Channeling Good Ol' Veep Joe today?

:-)